Council repeals housing fee increase

Gives fee opponents 3 months to return with alternative

Business Minute

The City Council on Tuesday unexpectedly repealed the increase in the affordable housing linkage fee in the face of a referendum challenge by the business community.

But on a motion by Councilwoman Myrtle Cole, the council gave fee opponents three months to come back with alternatives.

“Like me, you recognize the need to create good paying jobs and affordable housing,” Cole said, addressing business leaders in the council chambers. “I know we can accomplish both.”

The linkage fee, formally the “workforce housing offset,” was established in 1990 as one of several sources for the city’s housing trust fund to support affordable or subsidized projects. The council increased the fee by 500 percent for office buildings late last year, with similar increases on other nonresidential development, and the business community, led by the Jobs Coalition and the San Diego Regional Chamber of Commerce, collected more than 50,000 signatures to oppose it.

If the council had not rescinded the fee increase ordinance, it would have gone to the ballot June 3. Opponents had vowed to spend whatever was necessary to defeat it.

Mayor Kevin Faulconer, who opposed the fee increase while he was on the council, called Tuesday’s vote a “victory for jobs and the local economy.”

“The City Council made the right decision, avoiding a costly election battle and creating an opportunity to reach a bipartisan compromise to address affordable housing that doesn’t negatively impact San Diego’s economic development,” Faulconer said in a statement.

Faulconer’s opponent in last month’s mayoral runoff, Councilman David Alvarez, had been a staunch defender of the fee increase but said he changed his mind during the council debate. He made the motion to repeal and with Cole’s amendment, it was approved unanimously.

“What I heard a lot was the fact that people wanted to bring forward solutions,” Alvarez said. “The (housing affordability) problem continues to grow and I’d hope you are serious, you actually want to do something, to talk about this and come forward with a solution.”

The fee, first adopted in 1990, is based on the theory that new commercial buildings generate a demand for housing by new employees in those buildings.

When the mid-1990s real estate recession hit, the council voted to roll back the fee to lower costs to developers and demonstrate the city as “business friendly.”

But when the recession lifted and development took off, the fee never returned to its old rate and it was never updated to reflect the rising cost of construction.

While joining her colleagues in the vote, Councilwoman Marti Emerald characterized business opponents as carrying on a “snow job” and lying about their intentions.

“Pardon me if I’m skeptical, if I’ve lost faith with the tired, hackneyed arguments you bring to the council chamber,” Emerald said. “I don’t believe you’ll be responsible.”

Council President Todd Gloria also expressed some doubt that new solutions will be presented that will result in more affordable housing, given the many false starts for other approaches to lowering housing costs that have occurred in the 24 years of the fee’s existence.

“You were a history major, I was a religion major,” San Diego Housing Commission CEO Rick Gentry told Gloria, reflecting on earlier attempts at compromise. “Miracles sometimes do happen.”

The council specifically asked Gentry and fee supporters to meet with fee opponents and report back by June to a council committee on progress toward a compromise.

Possibilities mentioned at the council meeting include some increase in the fee, a 2016 bond measure, streamlined permit processing and ways to cut the cost of subsidized housing projects. Councilman Scott Sherman said it can run twice as much to build an affordable housing unit as a market-rate unit.

Cole coupled her support for repealing the measure to a proposed city ballot measure that would increase the minimum wage, an idea the business community and Faulconer also oppose.

“The way to jump-start the economy is by better paid workers,” Cole said.

Several business representatives said the fees would make it hard for them to buy new equipment or hire more employees. A Qualcomm official said his company faced a $5 million charge if it goes forward with additional buildings at its Sorrento Valley location -- a cost that had prompted several suburban cities to appeal to Qualcomm to expand in their jurisdictions, where linkage fees don’t exist.

The only prominent defender of the higher fees to testify was Susan Riggs, executive director of the San Diego Housing Federation.

“As recently as last week, we reached out to the Jobs Coalition and tried to find common ground -- without success,” Riggs said. She preferred going to the voters rather than returning to the bargaining table.

Craig Benedetto, speaking for the Jobs Coalition and commercial development organizations, cast the issue as something like a war.

“I think it’s something we can avoid if we can put down our weapons,” Benedetto said. “We will announce after today the creation of organizations and entities to hold us accountable. Help us de-escalate. We don’t need to go down that path (of a ballot fight).”

Over the years, the commission, which administers the housing trust fund, held a series of meetings to discuss other funding possibilities and formed a task force to make recommendations, but no consensus ever resulted. The current fee generates about $2 million annually to the trust fund with the money used to build and rehabilitate housing and operate various commission programs.

Meanwhile, in a budget move in 2011, the state dissolved more than 400 local redevelopment agencies, including San Diego’s. That step lost the city about $34 million annually in redevelopment property taxes set aside for affordable housing.

The proposed fees, approved by the council in December, would have increased the commercial charge by 2016 from $1.06 to $5.32 per square foot for office buildings, 64 cents to $4.73 per square foot for hotels, 64 cents to $4.96 per square foot for retail space and similar increases for three types of industrial properties. The fees would be increased automatically each year, based on a building cost index.

The commission estimates the higher fees would have generated about $10 million annually, enough to build about 100 dweling units. Developers would have been able apply for fee adjustments from the commission or a wavier from the council if they could show their project had no impact on employment.